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How Affordable is Canadian Housing?
Source Rob Carrick Globe & Mail
"Royal Bank of Canada's housing affordability measure takes a quarterly look at what percentage of median pre-tax household income is needed to pay the cost of a mortgage on an average-priced detached bungalow, plus property taxes and utilities. Lenders deem a house to be affordable if the associated costs account for no more than 32 per cent of the borrower’s gross income."
The bidding up of property values in the last decade by 10-20% per year is well beyond the rate of growth of the real economy at 2-4% per year and slowing (the last GDP print was 1.4%/yr).
Low interest rates have not allowed most people to qualify for uninsured "conventional" mortgages at the best rates with 20-25% down payment and a 32% gross debt service ratio because prices are at fundamental bubble levels and the thinning number of buyers who believe prices will not correct deeply are still willing to take on high ratio debt insured by tax payers.
I say the disparity between housing affordability and the productive economy will correct unless we get a big surge in private sector household earnings. In the absence of earnings growth which at the moment is only happening in Alberta, the continuation of housing inflation is not a good bet since we are at money laundering price levels; a service not required by most of us.
History, Charts & Curated Readings
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense